No. 19-1061

IN THE

Supreme Court of the United States ____________________

DR. REDDY’S LABORATORIES, LTD., ET AL., Petitioners,

v. ELI LILLY AND COMPANY,

Respondent. ____________________

On Petition for Writ of Certiorari to the United States Court of Appeals

for the Federal Circuit ____________________

BRIEF OF AMERICA’S HEALTH INSURANCE PLANS AS AMICUS CURIAE IN SUPPORT OF

PETITIONERS ____________________

JULIE SIMON MILLER MICHAEL S. SPECTOR AMERICA’S HEALTH INSURANCE PLANS 601 Pennsylvania Ave., NW Washington, DC 20004

ANNA-ROSE MATHIESON Counsel of Record KATY GRAHAM CALIFORNIA APPELLATE LAW GROUP LLP 96 Jessie Street San Francisco, CA 94105 (415) 649-6700 annarose@calapplaw.com

Counsel for Amicus AHIP

i TABLE OF CONTENTS

Page INTEREST OF AMICUS CURIAE .......................... 1

INTRODUCTION AND SUMMARY OF ARGUMENT ......................................................... 3

ARGUMENT ............................................................. 5

I. The Scope of Prosecution History Estoppel Raises an Important Question with Broad Impact on Public Health and Drug Affordability. ........................................ 5

A. Prosecution history estoppel is critical to ensuring affordable prescription drugs. .............................. 5

B. The availability of generic alternatives slashes costs and gives consumers greater access to life-saving medications. ........................... 10

II. The Federal Circuit’s Overly Broad Interpretation of the Tangential Exception Undermines Innovation. ............ 13

A. The tangential exception does not encompass knowing surrender of a claim. .................................................. 13

B. The uncertainty created by the decision below stifles innovation and leads to gamesmanship. ............. 16

III. Open Disagreement Within the Federal Circuit Warrants this Court’s Review. ....... 20

CONCLUSION ........................................................ 22

ii

TABLE OF AUTHORITIES Page

CASES Autogiro Co. of Am. v. United States,

384 F.2d 391 (Ct. Cl. 1967) ................................ 14 Bonito Boats, Inc. v. Thunder Craft Boats, Inc.,

489 U.S. 141 (1989) ............................................ 20 Exhibit Supply Co. v. Ace Patents Corp.,

315 U.S. 126 (1942) ............................................ 15 Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki

Co., Ltd., 535 U.S. 722 (2002) ..................................... passim

Glaxo Wellcome, Inc. v. Impax Labs., Inc., 356 F.3d 1348 (Fed. Cir. 2004) ........................ 7, 8

Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996) ............................................ 16

McClain v. Ortmayer, 141 U.S. 419 (1891) ............................................ 16

Nautilus, Inc. v. Biosig Instruments, Inc., 572 U.S. 898 (2014) .......................................20, 21

Panduit Corp. v. All States Plastic Mfg. Co., Inc., 744 F.2d 1564 (Fed. Cir. 1984) .....................21, 22

PLIVA, Inc. v. Mensing, 564 U.S. 604 (2011) .............................................. 6

Richardson-Merrell, Inc. v. Koller, 472 U.S. 424 (1985) ............................................ 22

Schwarz Pharma, Inc. v. Paddock Labs., Inc., 504 F.3d 1371 (Fed. Cir. 2007) ............................ 8

Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964) ............................................ 14

Slimfold Mfg. Co., Inc. v. Kinkead Indus., Inc., 932 F.2d 1453 (Fed. Cir. 1991) .......................... 18

United Carbon Co. v. Binney & Smith Co., 317 U.S. 228 (1942) .......................................16, 20

iii

TABLE OF AUTHORITIES (continued)

Page

Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U.S. 17 (1997) ..................................... 7, 20, 21

CONSTITUTIONS U.S. Const., art. I, § 8, cl. 8 ..................................... 13

STATUTES Hatch-Waxman Act, 21 U.S.C. § 355 ................4, 5, 6

REGULATIONS 21 C.F.R. § 314.94 ..................................................... 6

LEGISLATIVE MATERIALS H.R. Rep. No. 98–857 (1984) ..................................... 6 S. Rep. No. 97-275 (1981) ........................................ 20

OTHER AUTHORITIES Altarum Ctr. for Value in Health Care,

Insights from Monthly Nat’l Health Spending Data Through December 2019 (Feb. 2020), available at https://altarum.org/sites/default/files/uploaded-publication-files/SHSS-Spending-Brief_Feb_2020-v2.pdf .............................................................. 3, 10

Ass’n for Accessible Meds., The Case for Competition: 2019 Generic Drug & Biosimilars Access & Savings in the U.S. Report (2019), available at https://accessiblemeds.org/sites/default/files/2019-09/AAM-2019-Generic-Biosimilars-Access-and-Savings-US-Report-WEB.pdf .. 8, 9, 12

iv

TABLE OF AUTHORITIES (continued)

Page

Garth Boehm et al., Development of the Generic Drug Industry in the US After the Hatch-Waxman Act of 1984, 3 Acta Pharm. Sinica B 297 (Sept. 2013), available at https://www.sciencedirect.com/science/article/pii/S2211383513000762#bib12 ........................ 6

Mildred K. Cho et al., Effects of Patents and Licenses on the Provision of Clinical Genetic Testing Servs., 5 J. Molecular Diagnostics 3 (Feb. 2003), available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1907368/#__ffn_sectitle ............................. 17

Federal Trade Comm’n, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy (Oct. 2003), available at https://www.ftc.gov/sites/default/files/documents/reports/promote-innovation-proper-balance-competition-and-patent-law-and-policy/innovationrpt.pdf .................................... 18

The Federalist No. 43, at 309 (B. Wright ed. 1961) ................................................................... 20

Divya Grover, Costly Drugs to Weigh on U.S. Employers’ Expenses in 2018: Survey, Reuters (Sept. 18, 2017), http://www.reuters.com/article/us-usa-healthcare-survey/costly-drugs-to-weigh-on-u-s-employers-expenses-in-2018-survey-idUSKCN1BT1FR.............................................. 11

Michael A. Heller & Rebecca S. Eisenberg, Can Patents Deter Innovation? The Anticommons in Biomedical Research, 280 Sci. 698 (May 1, 1998), available at http://science.sciencemag.org/content/280/5364/698.full ................................................................. 17

v

TABLE OF AUTHORITIES (continued)

Page

IQVIA Inst. for Human Data Science, The Global Use of Medicine in 2019 and Outlook to 2023 (Jan. 2019), available at https://informatori.it/wp-content/uploads/2019/03/the-global-use-of-medicine-in-2019-and-outlook-to-2023.pdf.......................10, 11

IQVIA Inst. for Human Data Science, Medicine Use and Spending in the U.S. (May. 2019), available at https://www.iqvia.com/insights/the-iqvia-institute/reports/medicine-use-and-spending-in-the-us-a-review-of-2018-and-outlook-to-2023 ..... 3, 10

Judith A. Johnson, FDA Regulation of Follow-On Biologics (Cong. Research Serv., Apr. 26, 2010), available at https://primaryimmune.org/wp-content/uploads/2014/05/Biosimilars_Congressional_Research_Service_Report.pdf .......................... 11

Ron D. Katznelson & John Howells, Necessity is the Mother of Inventing Around: How Circumventing Edison’s Lamp Patent Stimulated Downstream Development & Competition (Feb. 14, 2018), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2464308 .............................18, 19

Aaron S. Kesselheim et al., The High Cost of Prescription Drugs in the United States: Origins and Prospects for Reform, 316 JAMA 858 (Aug. 2016), available at https://phhp-bahealthscience-new.sites.medinfo.ufl.edu/files/2016/09/jsc1600151.pdf ........................................... 3, 11, 12

vi

TABLE OF AUTHORITIES (continued)

Page

Medicaid & CHIP Payment & Access Comm’n, Report to Congress on Medicaid and CHIP (June 2016), available at https://www.macpac.gov/wp-content/uploads/2016/06/June-2016-Report-to-Congress-on-Medicaid-and-CHIP.pdf ..................................... 10

Mercer, Mercer Survey Finds Employers Hold Health Benefit Cost Increases to 4.3%, Maintaining Stable Growth (Sept. 18, 2017), https://www.mercer.us/our-thinking/healthcare/mercer-survey-finds-employers-hold-health-benefit-cost-increases-to-43-maintaining-stable-growth.html........................................................ 11

Jon F. Merz, Disease Gene Patents: Overcoming Unethical Constraints on Clinical Laboratory Medicine, 45 Clinical Chemistry 324 (March 1999), available at http://clinchem.aaccjnls.org/content/45/3/324.full ............................................................... 17

Franklin L. Pope, Electricity, The Engineering Magazine, Oct. 1893, available at https://books.google.com/books?id=hfVAAQAAMAAJ .............................................. 19

Stephen W. Schondelmeyer & Leigh Purvis, AARP Public Policy Inst., Brand Name Drug Prices Increased More Than Twice as Fast as Inflation in 2018 (Nov. 2019), available at https://www.aarp.org/content/dam/aarp/ppi/2019/11/brand-name-drug-prices-increase-more-than-twice-as-fast-as-inflation.doi.10.26419-2Fppi.00073.005.pdf ..... 11

Richard H. Seamon, The Provenance of the Federal Courts Improvement Act of 1982, 71 Geo. Wash. L. Rev. 543 (2003) ..................... 20

vii

TABLE OF AUTHORITIES (continued)

Page

U.S. Food & Drug Admin. Office of Women’s Health, Medicines to Help You: High Blood Pressure (May 2011), available at https://www.fda.gov/media/81967/download ...... 9

WebMDRx, Wellbutrin XI Prices and Coupons, https://www.webmd.com/rx/drug-prices/wellbutrin-xl (last visited Mar. 25, 2020) ........... 8

BRIEF OF AMERICA’S HEALTH INSURANCE PLANS

AS AMICUS CURIAE IN SUPPORT OF PETITIONERS1

America’s Health Insurance Plans (AHIP) respect-fully submits this brief as amicus curiae in support of the petitions for writ of certiorari in Nos. 19-1058 and 19-1061.2

INTEREST OF AMICUS CURIAE AHIP is a national association whose members

provide coverage for health care and related services to millions of Americans every day. These services improve and protect the health and financial security of consumers, families, businesses, and the nation. AHIP advocates for public policies that expand access to affordable health care coverage through a competi-tive marketplace that fosters choice, quality, and in-novation.

Increases in prescription drug costs are a leading driver of rising health care costs. AHIP seeks practi-cal solutions that reduce consumer costs and increase

1 No counsel for a party authored the brief in whole or in

part, and no counsel or party made a monetary contribution in-tended to fund the preparation or submission of the brief. No person or entity, other than the amicus curiae, its members, or its counsel, made a monetary contribution to the preparation or submission of this brief. Amicus provided all parties with notice of its intent to file this brief more than ten days before the dead-line, and all parties consented to the filing of this brief.

2 Both petitions for certiorari are from the same Federal Cir-cuit decision. AHIP supports both petitions, but takes no posi-tion on whether the Court should set both petitions for argument on the merits.

2

patient access to needed medication, so AHIP has a strong interest in ensuring that our legal system effi-ciently resolves claims of patent invalidity. To that end, AHIP has filed amicus briefs in other significant cases about drug patents, such as Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, 138 S. Ct. 1365 (2018); Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016); and Saint Regis Mohawk Tribe v. Mylan Pharm. Inc., 896 F.3d 1322 (2018).

3

INTRODUCTION AND SUMMARY OF ARGUMENT

Rising prescription drug prices are a serious prob-lem for our nation and economy. Americans spent around $384 billion on prescription drugs just last year,3 and drugs protected by patent monopolies make up the bulk of these costs.4 While brand-name drugs account for only 10% of all dispensed prescrip-tions in the United States, they account for 79% of drug spending.5 These costs impose heavy tolls on consumers and businesses who pay higher premiums, on hardworking taxpayers who fund public programs like Medicaid and Medicare, and on patients who can-not afford life-saving medications.

Competition from generic medications is one of the most effective ways to reduce drug prices and increase patient access to critical medications.6 Congress rec-ognized this fact decades ago and passed the Hatch-

3 Altarum Ctr. for Value in Health Care, Insights from

Monthly Nat’l Health Spending Data Through December 2019 2 (Feb. 2020), available at https://altarum.org/sites/default/files/uploaded-publication-files/SHSS-Spending-Brief_Feb_2020-v2.pdf.

4 IQVIA Inst. for Human Data Science, Medicine Use and Spending in the U.S. 54 (May. 2019), available at https://www.iqvia.com/insights/the-iqvia-institute/reports/medicine-use-and-spending-in-the-us-a-review-of-2018-and-outlook-to-2023.

5 Id. 6 Aaron S. Kesselheim et al., The High Cost of Prescription

Drugs in the United States: Origins and Prospects for Reform, 316 JAMA 858, 861 (Aug. 2016), available at https://phhp-bahealthscience-new.sites.medinfo.ufl.edu/files/2016/09/jsc1600151.pdf.

4

Waxman Act, 21 U.S.C. § 355, to promote generic drug development. The Act encourages generic drug com-panies to design around existing patents to develop non-infringing bioequivalent medications.

Prosecution history estoppel plays a key role in this process. It allows generic manufacturers to rely on the decisions that brand-name drug manufactur-ers made during the patent process, and provides a zone of non-infringing territory in which generics may safely develop. But internal division within the Fed-eral Circuit imperils this zone.

The decision below allows patent holders to recap-ture patent claims that they knowingly surrendered to the public even after generic manufacturers have relied on the express terms of the patent. That runs directly contrary to the policies underlying patent law, prevents critical generic medications from reach-ing the public, and undermines Congress’s central purpose in enacting Hatch-Waxman.

This case provides an ideal opportunity for the Court to correct the Federal Circuit’s misunderstand-ing of the law, enforce the constitutional text, and pro-tect American consumers from rising drug prices. The Court should grant review.

5

ARGUMENT I. The Scope of Prosecution History Estop-

pel Raises an Important Question with Broad Impact on Public Health and Drug Affordability.

Companies have strong incentives to seek broad patents, and often file initial patent applications that claim patents over material that is obvious, antici-pated by prior art, and otherwise unpatentable. When those claims are rejected by a patent examiner, the companies have a variety of options: Challenge the rejection, draft a carefully tailored claim that dis-claims only the unpatentable material, or draft a much narrower claim that might speed up the patent process.

This Court has long recognized the defense of pros-ecution history estoppel, which applies when “the pa-tentee originally claimed the subject matter alleged to infringe but then narrowed the claim in response to a rejection.” Festo Corp. v. Shoketsu Kinzoku Kogyo Ka-bushiki Co., Ltd., 535 U.S. 722, 733-34 (2002). In those circumstances, the patent owner may not try to retroactively broaden the patent by arguing “that the surrendered territory comprised unforeseen subject matter that should be deemed equivalent to the literal claims of the issued patent.” Id.

A. Prosecution history estoppel is crit-ical to ensuring affordable prescrip-tion drugs.

Prosecution history estoppel drives many pharma-ceutical patent cases because of the Hatch-Waxman Act (formally known as the Drug Price Competition

6

and Patent Term Restoration Act of 1984, 98 Stat 1585). Before passage of the Act, generics were only available for a small portion of medications.7 Con-gress passed the Act to spur increased development of generic alternatives and ensure they were available to the American public. H.R. Rep. No. 98–857, pt. 1, at 14 (1984).8

Under the Hatch-Waxman Act, a generic manufac-turer need not complete the expensive drug trials re-quired for initial approval of a medication if the ge-neric product is bioequivalent to the brand name product—that is, if it delivers the same amount of ac-tive ingredient in the same amount of time. 21 U.S.C. § 355(j)(2)(A)(ii), (iii), (iv); PLIVA, 564 U.S. 604, 628.

To receive permission to market a generic drug, the applicant must also certify that the patent on the name-brand product is invalid or not infringed by the generic product (a process known as paragraph IV certification). 21 C.F.R. § 314.94(a)(12)(i)(A)(4). But because the generic must be bioequivalent to the

7 In 1983, only 35% of top-selling branded drugs with ex-

pired patents had generic competition, and the generic market share was only 13%. In 2012, generics reached 84% of dis-pensed prescriptions. Garth Boehm et al., Development of the Generic Drug Industry in the US After the Hatch-Waxman Act of 1984, 3 Acta Pharm. Sinica B 297, 298 (Sept. 2013), available at https://www.sciencedirect.com/science/article/pii/S2211383513000762#bib12.

8 The purpose of the Hatch-Waxman Act is to “make availa-ble more low cost generic drugs by establishing a generic drug approval procedure.” H.R. Rep. No. 98–857, pt. 1, at 14 (1984); see PLIVA, Inc. v. Mensing, 564 U.S. 604, 627-28 (2011).

7

name-brand drug, the generic medication will gener-ally fall within the scope of the doctrine of equiva-lents, which provides that “a product or process that does not literally infringe upon the express terms of a patent claim may nonetheless be found to infringe if there is ‘equivalence’ between the elements of the ac-cused product or process and the claimed elements of the patented invention.” Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U.S. 17, 21 (1997). Thus, until a patent expires or a court declares it in-valid, generics can generally only develop where a de-fense such as prosecution history estoppel applies.

When (as here) the patent applicant deliberately surrendered certain equivalents when seeking a pa-tent, the Federal Circuit has often applied prosecu-tion history estoppel to find that the generic manufac-turer does not infringe a patent that it carefully de-signed around.

Consider, for example, the common anti-depres-sant medication Wellbutrin. When seeking a patent on a sustained release formulation the manufacturer narrowed the scope of its claims, specifying that its patent covered only formulas containing hydroxypro-pyl methylcellulose. Glaxo Wellcome, Inc. v. Impax Labs., Inc., 356 F.3d 1348, 1350 (Fed. Cir. 2004). Re-lying on that amendment, a generic manufacturer de-veloped a substitute using hydroxypropyl cellulose in-stead. Id. at 1351. Glaxo promptly sued, as brand-name manufacturers generally do whenever generics enter the market. See id.

The Federal Circuit took up the issue shortly after this Court’s decision in Festo. The court ruled that

8

prosecution history estoppel applied, rejecting the pa-tent holder’s claim that it should be allowed to recap-ture the territory it had deliberately ceded during pa-tent prosecution by invoking the tangential exception. Glaxo Wellcome, 356 F.3d at 1349. This allowed the generic manufacturer to deliver non-infringing ge-neric substitutes for the popular medication before the patents expired, providing huge savings for con-sumers.9

The common hypertension medication Univasc provides another example. When Warner-Lambert first sought a patent for a component of those tablets, the patent examiner rejected the claim as obvious, and the company narrowed the scope of its claim in response. Schwarz Pharma, Inc. v. Paddock Labs., Inc., 504 F.3d 1371, 1373 (Fed. Cir. 2007).

Relying on that amendment, a generic manufac-turer sought to market a generic alternative. Id. Warner-Lambert sued the generic manufacturer for infringement, but the Federal Circuit affirmed a find-ing of prosecution history estoppel. Id. at 1372-73. The generic manufacturer was thus able to deliver af-fordable blood pressure medication—and generic ver-sions of this medication saved Americans around

9 The current price for Wellbutrin is at least 45 times as

much as the generic equivalent. See WebMDRx, Wellbutrin XI Prices and Coupons, https://www.webmd.com/rx/drug-prices/wellbutrin-xl (last visited Mar. 25, 2020); Ass’n for Accessible Meds., The Case for Competition: 2019 Generic Drug & Biosimi-lars Access & Savings in the U.S. Report 32 (2019), available at https://accessiblemeds.org/sites/default/files/2019-09/AAM-2019-Generic-Biosimilars-Access-and-Savings-US-Report-WEB.pdf.

9

$32.4 billion in 2018.10 The availability and accessi-bility of a generic alternative also increases the like-lihood that patients can take their hypertension med-ication without interruption, which saves countless lives.11

That’s how the system is supposed to work. When name-brand drug manufacturers make a conscious choice to surrender certain territory, generic manu-facturers should be able to rely on the clear terms of the patents to develop and market a generic alterna-tive.

But in the decision below, the Federal Circuit ruled that the brand-name manufacturer could have a do-over and retroactively expand its patent to cover territory it now wishes it had claimed. That decision artificially broadens and extends patent monopolies, raises the costs of medication, and causes deep harms to consumers and their communities.

10 Ass’n for Accessible Meds., The Case for Competition, su-

pra n.9, at 21. 11 Americans were more than twice as likely to leave already-

filled prescriptions for brand-name drugs at the pharmacy than they were for generic medications. Id. at 14. Patients must take hypertension medication without interruption if they are to re-duce their risk of kidney failure, stroke, blindness, and heart at-tack. U.S. Food & Drug Admin. Office of Women’s Health, Med-icines to Help You: High Blood Pressure 2 (May 2011), available at https://www.fda.gov/media/81967/download.

10

B. The availability of generic alterna-tives slashes costs and gives con-sumers greater access to life-saving medications.

In the pharmaceutical context, blocking the entry of generic alternatives costs billions of dollars and can have life-or-death repercussions.

The United States spends 18% of its gross domes-tic product on health care, up from just 7% in 1970.12 As of 2019, the nation spent about $384 billion annu-ally on prescription drugs.13 And experts forecast pre-scription drug spending to reach over $600 billion by 2023.14

Patented drugs make up the bulk of these costs.15 As noted, brand-name drugs account for only 10% of all dispensed prescriptions but 79% of drug spend-ing.16 Between 2009 and 2018, prices for the most commonly used brand-name drugs increased by

12 Altarum, Insights from Monthly Nat’l Health Spending

Data, supra n.3, at 1; Medicaid & CHIP Payment & Access Comm’n, Report to Congress on Medicaid and CHIP 3 (June 2016), available at https://www.macpac.gov/wp-content/uploads/2016/06/June-2016-Report-to-Congress-on-Medicaid-and-CHIP.pdf.

13 Altarum, Insights from Monthly Nat’l Health Spending Data, supra n.3, at 2.

14 IQVIA Inst. for Human Data Science, The Global Use of Medicine in 2019 and Outlook to 2023 8 (Jan. 2019), available at https://informatori.it/wp-content/uploads/2019/03/the-global-use-of-medicine-in-2019-and-outlook-to-2023.pdf.

15 IQVIA, Medicine Use and Spending in the U.S., supra n.4, at 54.

16 Id.

11

190%, far more than the consumer price index.17 While pressure from federal policymakers and new state laws have worked together to somewhat slow price increases for branded drugs, prices still continue to climb.18

The “only form of competition that consistently and substantially decreases prescription drug prices occurs with the availability of generic drugs, which emerge after the monopoly period ends.”19 Typically, the presence of generic medications can cut branded drug prices by half or even more.20 “Drug prices de-cline to approximately 55% of brand-name drug prices with 2 generic manufacturers making the product,

17 Stephen W. Schondelmeyer & Leigh Purvis, AARP Public

Policy Inst., Brand Name Drug Prices Increased More Than Twice as Fast as Inflation in 2018 (Nov. 2019), available at https://www.aarp.org/content/dam/aarp/ppi/2019/11/brand-name-drug-prices-increase-more-than-twice-as-fast-as-infla-tion.doi.10.26419-2Fppi.00073.005.pdf.

18 Id.; see also IQVIA, The Global Use of Medicine, supra n.14, at 10-11; Divya Grover, Costly Drugs to Weigh on U.S. Em-ployers’ Expenses in 2018: Survey, Reuters (Sept. 18, 2017), http://www.reuters.com/article/us-usa-healthcare-survey/costly-drugs-to-weigh-on-u-s-employers-expenses-in-2018-survey-idUSKCN1BT1FR; Mercer, Mercer Survey Finds Employers Hold Health Benefit Cost Increases to 4.3%, Maintaining Stable Growth (Sept. 18, 2017), https://www.mercer.us/our-thinking/healthcare/mercer-survey-finds-employers-hold-health-benefit-cost-increases-to-43-maintaining-stable-growth.html).

19 Kesselheim et al., High Cost of Prescription Drugs, supra n.6, at 861.

20 Judith A. Johnson, FDA Regulation of Follow-On Biologics 2 (Cong. Research Serv., Apr. 26, 2010), available at https://pri-maryimmune.org/wp-content/uploads/2014/05/Biosimilars_Con-gressional_Research_Service_Report.pdf.

12

33% with 5 manufacturers, and 13% with 15 manu-facturers.”21 And a recent study estimated that “ge-neric drugs have saved the U.S. health care system nearly two trillion dollars” from 2009 to 2018.22

21 Kesselheim et al., High Cost of Prescription Drugs, supra

n.6, at 861. 22 Ass’n for Accessible Meds., The Case for Competition, su-

pra n.9, at 10.

2014 2015 2016 2017 2018

202.1 220.5 242.6 265.1 292.6

ANNUAL SAVINGS FROM GENERICS 2014-2018

(IN BILLIONS)

13

While the patent system has benefits, the exist-ence of a patent monopoly for a prescription drug comes at a heavy price for patients who cannot afford life-saving medications. It causes Americans and businesses to pay higher and higher premiums be-cause of rising drug prices. And it imposes hardships on taxpayers who fund public programs like Medicaid and Medicare. II. The Federal Circuit’s Overly Broad Inter-

pretation of the Tangential Exception Un-dermines Innovation.

Prosecution history estoppel ensures that the doc-trine of equivalents remains tied to its underlying purpose: protecting against situations where the pa-tent holder inadvertently surrendered claims over material they had no words to describe. Festo, 535 U.S. at 734. While this Court has recognized an ex-ception to prosecution history estoppel when the amendment had only a “tangential relation to the equivalent in question,” id. at 740, neither law nor policy support applying that exception when the pa-tentee knew how to describe a claim yet knowingly surrendered it anyway.

A. The tangential exception does not encompass knowing surrender of a claim.

Under constitutional authority to “promote the progress of Science and useful Arts,” U.S. Const., art. I, § 8, cl. 8, Congress enacted patent laws that reward innovation with a temporary, limited monopoly. “But in rewarding useful invention, the ‘rights and welfare of the community must be fairly dealt with and effec-

14

tually guarded.’ To that end the prerequisites to ob-taining a patent are strictly observed, and when the patent has issued the limitations on its exercise are equally strictly enforced.” Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 230 (1964) (citation omitted).

“[L]ike any property right,” a patent’s “boundaries should be clear.” Festo, 535 U.S. at 730. The patent claim must describe the invention in exact terms, 35 U.S.C. § 112, “as part of the delicate balance the law attempts to maintain between inventors, who rely on the promise of the law to bring the invention forth, and the public, which should be encouraged to pursue innovations, creations, and new ideas beyond the in-ventor’s exclusive rights.” Festo, 535 U.S. at 731.

Although precision is statutorily required, the doc-trine of equivalents recognizes the limits of language to describe innovation. Id. The doctrine allows a pa-tentee to claim minor variations that it inadvertently left out when drafting the patent claim. Id. at 733. The doctrine aims to protect inventors from copyists who would “exploit[] the limits of the patent’s lan-guage” and the “unintended idea gaps” for which the inventor had no words. Id. at 731 (quoting Autogiro Co. of Am. v. United States, 384 F.2d 391, 397 (Ct. Cl. 1967)).

As this Court has repeatedly cautioned, though, “the doctrine of equivalents can create substantial un-certainty about where the patent monopoly ends.” Id. at 727. “To reduce the uncertainty . . . competitors may rely on the prosecution history, the public record of the patent proceedings.” Id. “When the patentee responds to [a] rejection by narrowing his claims, this prosecution history estops him from later arguing

15

that the subject matter covered by the original, broader claim was nothing more than an equivalent. Competitors may rely on the estoppel to ensure that their own devices will not be found to infringe by equivalence.” Id.

The patent holder in this situation needs no pro-tection from the limits of language. By drafting the amendment, the patent holder “recognized and em-phasized the difference between the two phrases” and the difference “thus disclaimed must be regarded as material.” Exhibit Supply Co. v. Ace Patents Corp., 315 U.S. 126, 136-37 (1942).

Festo announced three exceptions to prosecution history estoppel, but each of these is directed at inad-vertent surrender, situations when “the patentee could not reasonably be expected to have described the insubstantial substitute in question.” 535 U.S. at 740-41.

Those exceptions have no place in resolving this dispute. Eli Lilly knew how to draft a broad pemetrexed claim, as shown by its European equiva-lent to the claim at issue. Hospira Pet. 15; Dr. Reddy Pet. 10-11, 14. To avoid rejection based on prior art, it narrowed its claim to products using “pemetrexed disodium.” Petitioners carefully avoided infringe-ment by using a different pemetrexed compound. Yet the Federal Circuit found that even though petition-ers had scrupulously designed around the patent, and stayed within ceded territory, they still infringed on it, since in hindsight the court determined that Eli Lilly could have used broader language and still se-cured a patent.

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That rule creates a zone of uncertainty for manu-facturers of generic medications. It does not “apprise the public of what is still open to them.” Markman v. Westview Instruments, Inc., 517 U.S. 370, 373, (1996) (quoting McClain v. Ortmayer, 141 U.S. 419, 424 (1891)). It makes it risky for companies to put their resources into developing generic medications. And as explained below, that uncertainty harms innova-tion and the American public.

B. The uncertainty created by the de-cision below stifles innovation and leads to gamesmanship.

The scope of a patent must be clear. As this Court explained in Festo, “[t]his clarity is essential to pro-mote progress, because it enables efficient investment in innovation.” 535 U.S. at 730-731. “A zone of un-certainty which enterprise and experimentation may enter only at the risk of infringement claims would discourage invention only a little less than unequivo-cal foreclosure of the field.” United Carbon Co. v. Bin-ney & Smith Co., 317 U.S. 228, 236 (1942).

This clarity is particularly important in the phar-maceutical industry, because unclear patents can chill the development and delivery of new products. This same deleterious impact is echoed in other facets of health care. In a survey of clinical laboratory direc-tors, more than half reported deciding not to develop a new clinical genetic test because of concern about an existing patent or license, and a quarter reported that they had stopped performing a genetic test because of

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a patent or license.23 Even the “knowledge that a pa-tent application has been filed can influence the deci-sion to spend the time and resources to develop a clin-ical test because of the uncertain risk that a patent holder will later prevent the laboratory from continu-ing to provide this service.”24

Prosecution history estoppel provides certainty to generic manufacturers. It allows them to scrutinize the terms of patents and design an alternative know-ing that they can avoid claims of infringement. In hearings before the Federal Trade Commission, “[p]harmaceutical and biotech representatives testi-fied that they use patent information disclosures re-quired by the patent statutes to direct their research and development (R&D) into areas not claimed by the patents. Representatives from generic pharmaceuti-cal firms discussed how patent disclosures guide their

23 Mildred K. Cho et al., Effects of Patents and Licenses on

the Provision of Clinical Genetic Testing Servs., 5 J. Molecular Diagnostics 3, 7 (Feb. 2003), available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1907368/#__ffn_sectitle; see also Mi-chael A. Heller & Rebecca S. Eisenberg, Can Patents Deter Inno-vation? The Anticommons in Biomedical Research, 280 Sci. 698 (May 1, 1998), available at http://science.sciencemag.org/con-tent/280/5364/698.full.

24 Jon F. Merz, Disease Gene Patents: Overcoming Unethical Constraints on Clinical Laboratory Medicine, 45 Clinical Chem-istry 324, 327 (March 1999), available at http://clinchem.aac-cjnls.org/content/45/3/324.full.pdf.

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efforts to ‘design- around’ patents, so that they can de-velop non-infringing generic versions of brand-name drug products.”25

This process of designing around existing patents “is not an esoteric or narrowly specialized activity—it is prevalent. As early as 1960, a majority (57%) of professional managers of innovation development consider competitors’ patent claims and manage de-signs around them as a staple of their practice.”26

Nor is designing around patents somehow suspect. “Designing around patents is, in fact, one of the ways in which the patent system works to the advantage of the public in promoting progress in the useful arts, its constitutional purpose.” Slimfold Mfg. Co., Inc. v. Kinkead Indus., Inc., 932 F.2d 1453, 1457 (Fed. Cir. 1991). And designing around patents often leads to “new and superior products or processes . . . that prob-ably would not have been developed, at least as soon, in the absence of the need to ‘invent around.’”27

25 Federal Trade Comm’n, To Promote Innovation: The

Proper Balance of Competition and Patent Law and Policy Ch. 3, pp. 1-2 (Oct. 2003), available at https://www.ftc.gov/sites/de-fault/files/documents/reports/promote-innovation-proper-bal-ance-competition-and-patent-law-and-policy/innovationrpt.pdf.

26 Ron D. Katznelson & John Howells, Necessity is the Mother of Inventing Around: How Circumventing Edison’s Lamp Patent Stimulated Downstream Development & Competition 2-3 (Feb. 14, 2018), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2464308.

27 Katznelson & Howells, Necessity is the Mother of Invent-ing Around, supra n.26, at 6-7 (citing National Research Council, The Role of Patents in Research, Part 1 14 (1962)).

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Yet this sort of design-around innovation requires that the bounds of a patent are clear and predictable. A study of Thomas Edison’s patent for the incandes-cent lightbulb provides a good illustration.28 Edison’s patent has often been described as blocking innova-tion, but the authors analyzed later patent applica-tions and concluded this was true only when the scope of the patent was ill-defined.29 After a court decision firmed up the exact boundaries of Edison’s patent, there was a “precipitous surge” in inventions and non-infringing patents by other manufacturers.30

Patent language must be clear and dependable to permit this sort of innovation. But the Federal Cir-cuit’s decision allows patent holders to knowingly cede territory when seeking a patent, then reclaim that same territory years later after a generic manu-facturer has committed to bringing a generic alterna-tive to market. That sort of bait-and-switch harms innovation, increases costs for consumers, and inhib-its the ability of the generic manufacturers to provide needed medication.

28 Id. 29 Id. at 11-12. 30 Id. at 26-27. And these design-around innovations pro-

vided public benefits, just as companies that create generic med-ications further the public good in ways Congress sought to spur. As a contemporary of Edison put it, “enforcement of the ’898 Ed-ison patent ‘had the effect of stimulating the inventive capacity of the electricians employed by rival interests, with the result that at least two new types of lamp have been put upon the mar-ket, which apparently bid fair to be commercially successful.’” Id. at 27 (citing Franklin L. Pope, Electricity, The Engineering Magazine, Oct. 1893, at 96, available at https://books.google.com/books?id=hfVAAQAAMAAJ).

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This Court should grant review and reverse the Federal Circuit’s broad rule, which fosters a “zone of uncertainty which enterprise and experimentation may enter only at the risk of infringement claims.” Nautilus, Inc. v. Biosig Instruments, Inc., 572 U.S. 898, 899 (2014) (quoting United Carbon Co., 317 U.S. at 236). III. Open Disagreement Within the Federal

Circuit Warrants this Court’s Review. Doctrinal stability in the field of patent law is es-

sential. “One of the fundamental purposes behind the Patent and Copyright Clauses of the Constitution was to promote national uniformity in the realm of intel-lectual property.” Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 162 (1989) (citing The Fed-eralist No. 43, at 309 (B. Wright ed. 1961)).

Congress created the Federal Circuit largely be-cause of the “special need for nationwide uniformity” in patent law. S. Rep. No. 97-275, at 2 (1981); see also id. at 5 (Congress designed the Federal Circuit to pro-vide “a forum that will increase doctrinal stability in the field of patent law.”); Richard H. Seamon, The Provenance of the Federal Courts Improvement Act of 1982, 71 Geo. Wash. L. Rev. 543, 577-80 (2003).

Yet this Court has had to step in many times when the Federal Circuit has allowed the doctrine of equiv-alents to create uncertainty. In a foundational case on prosecution estoppel, for instance, this Court granted review because of the Court’s “concern” that the Federal Circuit’s interpretation of the doctrine of equivalents “has taken on a life of its own, unbounded by the patent claims.” Warner-Jenkinson, 520 U.S. 17, 28-29.

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As this Court explained, “[t]here can be no denying that the doctrine of equivalents, when applied broadly, conflicts with the definitional and public-no-tice functions of the statutory claiming requirement.” Id. at 29. The Court announced that the doctrine of equivalents must be applied objectively, element-by-element, and limited by prosecution history estoppel. Id. at 33. The Court cautioned: “It is important to ensure that the application of the doctrine, even as to an individual element, is not allowed such broad play as to effectively eliminate that element in its en-tirety.” Id. at 29-30.

More recently, the Court stepped in because the Federal Circuit was invoking an “amorphous” stand-ard to assess patent invalidity for indefiniteness. Nautilus, 572 U.S. 898, 913. To solve the problem, the Court announced a definiteness standard that relies on prosecution history estoppel to deliver certainty within the limits of language: “[A] patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecu-tion history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the inven-tion.” Id. at 901. The Court cautioned against allow-ing uncertainty to persist, since that would deter in-novation and hamper public good. Id. at 909-10.

As explained thoroughly in the petitions for certi-orari, the Federal Circuit has fractured internally over how to apply the tangential exception to prosecu-tion history. Dr. Reddy Pet. 17-24; Hospira Pet. 27-30. That court has reached an impasse and cannot fulfill its “mandate to achieve uniformity in patent matters” with respect to prosecution history estoppel. Panduit Corp. v. All States Plastic Mfg. Co., Inc., 744

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F.2d 1564, 1574 (Fed. Cir. 1984), disapproved on other grounds in Richardson-Merrell, Inc. v. Koller, 472 U.S. 424 (1985). As explained above, this uncertainty decreases generic alternatives to expensive prescrip-tion medications. That leaves consumers, employers and the government with higher costs, and reduces consumer access to important—and potentially life-saving—medications. This Court should grant re-view.

CONCLUSION For all these reasons, the Court should grant the

petition for certiorari and reverse the decision below.

Respectfully submitted,

JULIE SIMON MILLER MICHAEL S. SPECTOR AMERICA’S HEALTH INSURANCE PLANS 601 Pennsylvania Ave., NW Washington, DC 20004

ANNA-ROSE MATHIESON Counsel of Record KATY GRAHAM CALIFORNIA APPELLATE LAW GROUP LLP 96 Jessie Street San Francisco, CA 94105 (415) 649-6700 annarose@calapplaw.com

March 2020